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Jim Boothe began his stock-picking career in a suburban Cleveland high-school economics class with a fictional $2,000 bet he parlayed into $20,000.

"I invested in a company, now defunct, Boothe Computer, that had my name in it," he chuckles, remembering the extraordinary results from the long shot.

Boothe, 56, has since developed a more balanced approach. He now subadvises the $1.3 billion
Nuveen Santa Barbara Dividend Growth
fund (ticker: NSBAX), which focuses on companies with at least $3 billion in market value and strong and growing dividends. In the past five years the fund has beaten 95% of its large-blend peers, with a gain of 3.7% versus a 1.6% return for the Standard & Poor's 500.

Portfolio manager Jim Boothe looks for companies that pay a hefty dividend or are about to.
Steve LaBadessa for Barron's

Boothe has the same goal of all dividend investors: Tame volatility with dividend-paying stocks. But, unlike many dividend investors who concentrate on value, he focuses on steady growers with predictable cash flow that can support increasing dividends. "I want companies that are not only growing their earnings, but also growing their dividends," he says. He looks for companies with a payout ratio -- the dividend a company pays, divided by its earning -- of 30% to 40%. Any lower and the company isn't committed enough to its dividend program; much higher indicates too little of a cash cushion, which means the company could be forced to cut its dividend if times get tougher.

A graduate of Kent State, class of '77, Boothe worked as both a stock and bond analyst before joining Santa Barbara in 2002. That experience leads him to look at metrics that many equity managers ignore. He sticks to high-quality stocks with pristine balance sheets, but doesn't mind debt as long as the company has the cash flow to continue paying and growing its dividends. "Generally, we seek to invest in companies with investment-grade debt," Boothe says.

He also aims to preserve capital when times are tough, and the fund typically doesn't lose as much money as other large blend funds in down markets. That's in part due to his strict pruning: When Boothe started the fund in 2006, he had 30% of its assets in the financial sector. But in late 2007 he began paring that allocation down to just 12%, limiting the fund's 2008 decline to 24.6%, versus a 37% drop in the S&P 500, putting him ahead of 98% of rivals. He will also sell a stock if he thinks a dividend cut is around the corner due to deteriorating company fundamentals or industrywide issues. That got him out of
General Electric GE -0.9574875526618154%General Electric Co.U.S.: NYSEUSD25.86
-0.25-0.9574875526618154%
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30035484AFTER HOURSUSD25.86
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Volume (Delayed 15m)
:
505757
P/E Ratio
17.660315509116984Market Cap
262201649244.502
Dividend Yield
3.5576179427687546% Rev. per Employee
481469More quote details and news »GEinYour ValueYour ChangeShort position
(GE) before it cut its dividend for the first time in 50 years. "We thought there were going to be some surprises with its GE Capital unit," Boothe says. "In fact, they had to recapitalize the unit, which lead to the dividend cut."

Nuveen Santa Barbara Dividend has struggled to beat its benchmark recently. Year-to-date, the fund is up 11.5% versus the S&P's 15.6% return, and is trailing three-quarters of its competitors. The fund's recent stumble is not surprising to long-term dividend-watchers such as Josh Peters, editor of the Morningstar Dividend Investor. "You are not looking to beat the market in any one quarter, you are trying to put together an income stream," Peters says, adding that dividend stocks outperform the market over a long period of time. This year's stock-market rally, though, has been oriented toward technology stocks. Technology holds the richest promise of increasing dividends, Boothe says. He missed the run-up in
Apple AAPL 0.20915640250987683%Apple Inc.U.S.: NasdaqUSD129.36
0.270.20915640250987683%
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37091187AFTER HOURSUSD129.3
-0.0600000000000023-0.04638218923933209%
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P/E Ratio
17.31726907630522Market Cap
751916704040.229
Dividend Yield
1.453308596165739% Rev. per Employee
2153110More quote details and news »AAPLinYour ValueYour ChangeShort position
(AAPL) but has recently purchased it along with
Motorola SolutionsMSI -1.0886921178690667%Motorola Solutions Inc.U.S.: NYSEUSD68.14
-0.75-1.0886921178690667%
/Date(1425420143692-0600)/
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1177457AFTER HOURSUSD68.14
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Volume (Delayed 15m)
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20099
P/E Ratio
13.053639846743295Market Cap
14927016236.6156
Dividend Yield
1.995890813031993% Rev. per Employee
392067More quote details and news »MSIinYour ValueYour ChangeShort position
(MSI), a spinoff of Motorola. Performance is also challenged by the hurdle of the fund's 5.75% sales fee; it has a 1.18% expense ratio, which is in line with the category but not anything to crow about. The fund yields 1.84%, while the S&P yields 2.07%.

Boothe eschews traditional income sectors, such as utilities, telecoms, or tobacco, saying they're too pricey these days and don't offer enough appreciation.

He also still likes New York-based
Time Warner CableTWC 0.7909459198765353%Time Warner Cable Inc.U.S.: NYSEUSD156.74
1.230.7909459198765353%
/Date(1425420034508-0600)/
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P/E Ratio
21.739251040221912Market Cap
43682756507.8125
Dividend Yield
1.9139977032027562% Rev. per Employee
416277More quote details and news »TWCinYour ValueYour ChangeShort position
(TWC), which provides video, high-speed data, and voice services, even though it has run up nearly 20% since he bought it. Boothe says it's essentially a utility stock in that it provides a service many Americans find almost as necessary as gas and electric. "It's becoming an essential item for consumers even though it is classified as discretionary," he says, adding that its cash flow is quite high because it's reaping the benefits of past capital spending. "That combination allows them to raise the dividend," he says, which the company has been doing annually.

Boothe sees other arguments for dividend-paying stocks: 400 of the 500 stocks in the S&P pay a dividend, the most since 1999. Meanwhile, at 30%, the payout ratio has never been lower, because companies have been reluctant to let go of their cash in the wake of the financial collapse. "The laggards are going to have to catch up to keep investors interested," he says. Let's hope that happens soon.